Banks have been accused of using 'stealth' and 'surprise' to generate huge profits through penalty fees in an extraordinary attack by the boss of the Office of Fair Trading.

The OFT, which will today reveal details of its legal case against banks, is locked in a legal battle that promises to have 'trick' penalty charges imposed by the banks on overdrafts and other products ruled unfair and illegal.

The move could slash billions of pounds a year from the income generated by the banks from charges of up to £38 a time for bouncing a cheque or busting a limit.

The nation's big banks justify the charges by arguing they form part of a regime that delivers 'free banking' to the vast majority of customers who remain in the black.

However, the OFT chief executive, John Fingleton, has gone on the attack saying the idea that the banks currently offer free banking is nothing more than a myth.

The official watchdog argues the banks effectively charge the public by paying little or no interest on balances held in current accounts.

The banks make huge profits by investing money held in these accounts. Separately, the high street giants impose a raft of backdoor fees on overdrafts, loans, credit cards and other products that are not clearly spelt out.

Mr Fingleton said: 'We don't have free banking at the moment, at the moment consumers pay for banking through surprises and through stealth. They don't see what they pay and very often they pay when an unexpected event happens like an unauthorised, unexpected overdraft.'

Mr Fingleton wants a shift in the way the nation pays for banking - doing away with sky-high penalty fees.

However, the banks have suggested they would retaliate by introducing annual or monthly fees for the right to have an account. This threat is rejected by the OFT which believes the banks have plenty of money from other sources to be able to swallow any loss of income.

Mr Fingleton explained the decision by the OFT to take court action over overdraft charges, saying he would like to see the end of 'tricks'. He said: 'What we hope to achieve by it is that very fundamental change in the behaviour of banks in the market place.

'So that they treat customers well, no tricks, no hidden extras, the pricing is fair and simple to understand. At the moment that's not the case.'

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He added: 'I think the crucial question is whether the current charging structure the banks have is legal. If the court agrees with our position, then not. Then the banks are going to have to look at the charging structure for customers.

'We would like to see a much more transparent pro consumer system of pricing and not a system that is funded on a basis of accidents that happen during the years that happen on your account.'

The banks are raking in up to £3.5 billion a year from overdraft charges - as much as £2 billion of this is profit or used to finance other aspects of their business.

Mr Fingleton's comments, which come in the BBC2 Money Programme tomorrow night, draw the battle lines with the banks, which will pour millions of pounds into the legal battle over fees.

The banks have made clear they have no intention of giving up this lucrative income without a fight. This has involved using dirty tactics to attempt to prevent tens of thousands of customers from using the courts to reclaim overdraft penalty charges dating back over six years. They have deliberately drawn out the complaints process, refused to provide information and some have closed the accounts of the customers involved in retaliation.

The Financial Services Authority is currently investigating two banks for failing to abide by the rules of the complaints handling process. Despite this, some estimates suggest the banks have had to pay back close to £1bn to customers.

The British Bankers Association says it does not believe the OFT has any legal jurisdiction over what banks charge around current accounts and overdrafts.

Chief executive, Angela Knight, said: 'As far as the banks are concerned we would not be going to court if we were not of the view that what we've being doing in terms of charging a fee for an unauthorised overdraft is not correct and legal.'

The case will be heard at the High Court early next year, however the final resolution could be put off if there are subsequent appeals.